Saving and investing Saving and investing optionsoptions4.03B4.03B

Essential QuestionEssential Question

What factors should be What factors should be considered in evaluating considered in evaluating saving and investing options?saving and investing options?

Saving OptionsSaving OptionsSavings PlansSavings Plans

Savings accountSavings account Usually allows low or zero balance, deposit or Usually allows low or zero balance, deposit or

withdrawals anytime and interest to be earned. withdrawals anytime and interest to be earned. Usually withdrawals are allowed without Usually withdrawals are allowed without penalties.penalties.

Wachovia Rates and FeesWachovia Rates and Fees https://www.wachovia.com/savings/premium-savings.hhttps://www.wachovia.com/savings/premium-savings.h

tml?intcid=PF_BNK_SAV_FP1_R_DPS_PSA_20667_465xtml?intcid=PF_BNK_SAV_FP1_R_DPS_PSA_20667_465x000_01T#panel3000_01T#panel3

Bank of America Rates and FeesBank of America Rates and Fees http://www.bankofamerica.com/deposits/checksave/http://www.bankofamerica.com/deposits/checksave/

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Saving OptionsSaving Options

Savings AccountsSavings Accounts Certificates of deposit (CDs)Certificates of deposit (CDs)

Requires a minimum deposit, money to remain Requires a minimum deposit, money to remain deposited for a period of time without penalties. deposited for a period of time without penalties. Penalties may be assessed if money is withdrawn Penalties may be assessed if money is withdrawn before specified time.before specified time.

Wachovia Rates and FeesWachovia Rates and Fees https://www.wachovia.com/savings/featured-cd.html https://www.wachovia.com/savings/featured-cd.html

Bank of America Rates and FeesBank of America Rates and Fees http://www.bankofamerica.com/deposits/checksave/http://www.bankofamerica.com/deposits/checksave/

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Saving OptionsSaving Options

Savings AccountsSavings Accounts Money market accountMoney market account

Requires a minimum deposit and interest is Requires a minimum deposit and interest is earned based on government and corporate earned based on government and corporate securities. Usually withdrawals are allowed securities. Usually withdrawals are allowed without penalties.without penalties.

Wachovia Rates and FeesWachovia Rates and Fees https://www.wachovia.com/savings/money-https://www.wachovia.com/savings/money-

market.html market.html Bank of America Rates and FeesBank of America Rates and Fees

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Main Categories of Investing Main Categories of Investing OptionsOptions

StocksStocks BondsBonds Mutual Funds and Exchange-traded Mutual Funds and Exchange-traded

FundsFunds Real EstateReal Estate CommoditiesCommodities CollectiblesCollectibles

Stock InvestmentsStock Investments

Two main categories of stock:Two main categories of stock: PreferredPreferred

Pays dividends at a set rate.Pays dividends at a set rate. CommonCommon

Represents general ownership in company Represents general ownership in company and sharing of profits.and sharing of profits.

Stock Investments cont.Stock Investments cont. What are the major similarities and What are the major similarities and

differences between preferred and common differences between preferred and common stocks?stocks? Major similarities between preferred and common Major similarities between preferred and common

stock are:stock are: Both have investment risks and pay dividendsBoth have investment risks and pay dividends

Major differences between preferred and common Major differences between preferred and common stock are:stock are:

Preferred stock pays dividends before common stock is Preferred stock pays dividends before common stock is paid.paid.

Preferred stockholders do not have voting powers; but Preferred stockholders do not have voting powers; but common stockholders are invited to annual corporate common stockholders are invited to annual corporate meetings and permitted to one vote per share of stock meetings and permitted to one vote per share of stock owned.owned.

Preferred stock is less risky than common stock. Preferred stock is less risky than common stock.

Stock Investments cont.Stock Investments cont. What are stockbrokers?What are stockbrokers?

Stockbrokers buy and sell stock and bonds Stockbrokers buy and sell stock and bonds at a set price for a commission for at a set price for a commission for stockholders. stockholders.

How do stockbrokers get paid?How do stockbrokers get paid? Commission and fees from the buying and Commission and fees from the buying and

selling of stocks and bonds.selling of stocks and bonds. Stock exchangeStock exchange

The stock exchange is where the trading of The stock exchange is where the trading of securities take place. securities take place.

NYSE: New York Stock Exchange www.nyse.com NYSE: New York Stock Exchange www.nyse.com NASQAQ:National Association of Securities NASQAQ:National Association of Securities

Dealers Automated Quotation System Dealers Automated Quotation System www.nasdaq.com www.nasdaq.com

Stock Investments cont.Stock Investments cont.

What is market value of stock?What is market value of stock? The market value of stock is the price for The market value of stock is the price for

which a share of stock can be purchased.which a share of stock can be purchased. What effects the market value of stock?What effects the market value of stock? What might make the price of a stock increase?What might make the price of a stock increase? What might make the price of a stock decrease?What might make the price of a stock decrease? At what market value do you want to purchase At what market value do you want to purchase

stock?stock?

Stock TableStock TableAA BB CC DD EE FF GG HH II

52 Week52 Week SalesSales

HighHigh LowLow StockStock DivDiv YldYld PEPE VolVol100s100s

HighHigh LowLow LastLast ChgChg

12 1/812 1/8 88 AARAAR .44.44 6.26.2 1515 66 6 3/46 3/4 6 5/86 5/8 6 1/26 1/2 -1/8-1/8

49 1/249 1/2 31 1/431 1/4 ACFACF 1.761.76 7.47.4 77 477477 36 1/436 1/4 37 5/837 5/8 37 37 +3/4+3/4

26 1/226 1/2 1616 AMFAMF 1.361.36 6.76.7 77 133133 17 1/217 1/2 17 1/217 1/2 17 1/217 1/2 -3/8-3/8

6 1/86 1/8 3 1/83 1/8 ARAARA 2 2 77 88 1010 33 7/833 7/8 33 7/833 7/8 3333 -1-1

Stock Table KeyStock Table Key AA-Highest and lowest price of stock during -Highest and lowest price of stock during

the past 52 weeksthe past 52 weeks BB-Symbol used to represent the company and -Symbol used to represent the company and

current dividend as dollars per share of stockcurrent dividend as dollars per share of stock CC-Dividend yield based on current selling -Dividend yield based on current selling

priceprice DD-Price-earning ratio-Price-earning ratio EE-Number of shares exchanged on trading -Number of shares exchanged on trading

day. The amount is listed in 100’s.day. The amount is listed in 100’s. FF-Highest price of a share on trading day-Highest price of a share on trading day GG-Lowest price of a share on trading day-Lowest price of a share on trading day

Selecting StockSelecting Stock

Factors that could influence investors Factors that could influence investors in selecting stock:in selecting stock: EconomicEconomic

InflationInflation The interest rate of the investment must be higher The interest rate of the investment must be higher

than the inflation rate to make money.than the inflation rate to make money. Interest ratesInterest rates

The higher the rate the more an investor can The higher the rate the more an investor can make.make.

Consumer spendingConsumer spending If consumer’s are spending money the market If consumer’s are spending money the market

value of the stock will rise.value of the stock will rise. EmploymentEmployment

Lower unemployment rates mean the economy is Lower unemployment rates mean the economy is better and more people may invest.better and more people may invest.

Types of MarketsTypes of Markets Bull MarketBull Market ( Positive )( Positive )

A bull market is associated with increasing A bull market is associated with increasing investor confidence, and increased investing investor confidence, and increased investing in anticipation of future price increases.in anticipation of future price increases.

It is a transition from fear and pessimism to It is a transition from fear and pessimism to investor optimism.investor optimism.

Bear marketBear market ( Negative )( Negative ) A bear market is a general decline in the A bear market is a general decline in the

stock market over a period of time. stock market over a period of time. It is a transition from high investor optimism It is a transition from high investor optimism

to widespread investor fear and pessimism. to widespread investor fear and pessimism.

Investing RatiosInvesting Ratios

Current Yield RatioCurrent Yield Ratio The Current Yield is calculated by dividing the The Current Yield is calculated by dividing the

amount an investment makes a year, in interest amount an investment makes a year, in interest or dividends, by the market price.or dividends, by the market price.

Earnings Per Share RatioEarnings Per Share Ratio Earnings per share, (EPS), is calculated by Earnings per share, (EPS), is calculated by

dividing a company's earnings, net income, by dividing a company's earnings, net income, by the number of outstanding shares. the number of outstanding shares.

Price-Earnings RatioPrice-Earnings Ratio The Price Earnings Ratio is calculated by dividing The Price Earnings Ratio is calculated by dividing

the market price of a stock by the Earnings Per the market price of a stock by the Earnings Per Share (EPS)Share (EPS)

Investing RatiosInvesting Ratios Current Yield Ratio Current Yield Ratio

A stock earned $25 last year and has a A stock earned $25 last year and has a

market value of $100market value of $100 25/100 = .25 or 25%25/100 = .25 or 25%

A stock earned $35 last year and had a A stock earned $35 last year and had a market value of $100market value of $100

35/100 = .35 or 35%35/100 = .35 or 35%

A stock earned $45 last year and had a A stock earned $45 last year and had a market value of $100market value of $100

45/100 = .45 or 45%45/100 = .45 or 45%

Investing RatiosInvesting Ratios Earnings Per ShareEarnings Per Share

Company 1 had a net profit of $10,000 and Company 1 had a net profit of $10,000 and 1,000 shares of stock outstanding. 1,000 shares of stock outstanding.

10,000/1,000 = 1010,000/1,000 = 10

Company 2 had a net profit of $20,000 and Company 2 had a net profit of $20,000 and 1,000 shares of stock outstanding.1,000 shares of stock outstanding.

20,000/1,000 = 2020,000/1,000 = 20

Company 3 had a net profit of $30,000 and Company 3 had a net profit of $30,000 and 1,000 shares of stock outstanding.1,000 shares of stock outstanding.

30,000/1000 = 3030,000/1000 = 30

Investing RatiosInvesting Ratios Price Earnings RatioPrice Earnings Ratio

Company 1 had a market value of $50.00 Company 1 had a market value of $50.00 per share and Earnings Per Share of 10.per share and Earnings Per Share of 10.

50/10 = 550/10 = 5 Company 2 had a market value of $50.00 Company 2 had a market value of $50.00

per share and Earnings Per Share of 20.per share and Earnings Per Share of 20. 50/20 = 2.550/20 = 2.5

Company 3 had a market value of $50.00 Company 3 had a market value of $50.00 per share and Earnings Per Share of 30.per share and Earnings Per Share of 30.

50/30 = 2.550/30 = 2.5

Investing RatiosInvesting Ratios Lets look at some companies on the NYSE Lets look at some companies on the NYSE

and check their financial information.and check their financial information. WalmartWalmart TargetTarget McDonaldsMcDonalds Wendy’sWendy’s Coca ColaCoca Cola PepsiPepsi

www.google.com/finance www.google.com/finance

Bond InvestmentsBond Investments What is a bond?What is a bond?

A promissory note to pay back a A promissory note to pay back a specified amount of money at a stated specified amount of money at a stated rate on a specific date.rate on a specific date.

Are issued to lend funds to the Are issued to lend funds to the organization selling the bond.organization selling the bond.

Main Categories of BondsMain Categories of Bonds Government bondsGovernment bonds

Municipal bondsMunicipal bonds Issued by local and state governments for public Issued by local and state governments for public

service projects.service projects.

Bond Investments cont.Bond Investments cont. Main Categories of BondsMain Categories of Bonds

Government bondsGovernment bonds U.S. savings bondsU.S. savings bonds

The federal government issues Series EE bonds, HH The federal government issues Series EE bonds, HH bonds, and I bonds. Also the federal government bonds, and I bonds. Also the federal government issues Treasury bills and notes. issues Treasury bills and notes.

The EE bond interest is paid once the bond is cashed. The EE bond interest is paid once the bond is cashed. The HH bond interest is paid twice a year, which may The HH bond interest is paid twice a year, which may be considered income.be considered income.

Treasury bills and notesTreasury bills and notes The treasury bills and notes differ by their maturity The treasury bills and notes differ by their maturity

time frame. Treasury bills may reach maturity time frame. Treasury bills may reach maturity between 91 days to a year; where as treasury notes between 91 days to a year; where as treasury notes take one to ten years.take one to ten years.

Bond Investments cont.Bond Investments cont.

Main Categories of BondsMain Categories of Bonds Corporate bondsCorporate bonds

Purchasing corporate bonds is a means of Purchasing corporate bonds is a means of loaning money to a company.loaning money to a company.

Lenders versus owners as it relates Lenders versus owners as it relates to investing in a company’s stocks to investing in a company’s stocks and bondsand bonds

Bond Investments cont.Bond Investments cont. How does stated interest rate impact How does stated interest rate impact

the value of a bond?the value of a bond? The stated interest rate usually determines The stated interest rate usually determines

the price investors want to pay for a bond. the price investors want to pay for a bond. If a bond’s stated interest rate is lower If a bond’s stated interest rate is lower

than similar ones, investors will most likely than similar ones, investors will most likely want to pay less for the bond. want to pay less for the bond.

If the stated interest rate is higher than If the stated interest rate is higher than similar ones, the seller will most likely similar ones, the seller will most likely want to be paid more than its face value.want to be paid more than its face value.

Mutual FundsMutual Funds DefinitionDefinition

A collection of stocks and/or bonds that A collection of stocks and/or bonds that brings together a group of people and brings together a group of people and invests their money in stocks, bonds, and invests their money in stocks, bonds, and other securities.other securities.

Each investor owns shares, which Each investor owns shares, which represent a portion of the holdings of the represent a portion of the holdings of the fund. fund.

Companies’ major tasks in Companies’ major tasks in assisting investors of mutual fundsassisting investors of mutual funds Assist investors of mutual funds by Assist investors of mutual funds by

studying companies stocks and bonds, and studying companies stocks and bonds, and then buying a variety of stocks and bonds then buying a variety of stocks and bonds to sell.to sell.

Mutual FundsMutual Funds Why invest in mutual funds?Why invest in mutual funds?

They are diverse, made up of different They are diverse, made up of different investments, and can help the investor investments, and can help the investor during poor financial times by spreading during poor financial times by spreading out the riskout the risk

If the stock market drops the bonds and If the stock market drops the bonds and other types of investments will protect other types of investments will protect the fund.the fund.

If the bond market drops the stocks and If the bond market drops the stocks and other investments will protect the fund.other investments will protect the fund.

Mutual FundsMutual Funds

Some examples of mutual fund Some examples of mutual fund categoriescategories Aggressive-growth stock fundsAggressive-growth stock funds

Look for quick growth, but also have an Look for quick growth, but also have an higher risk than other stock.higher risk than other stock.

Income fundsIncome funds Concentrate on stocks that pay regular Concentrate on stocks that pay regular

dividends.dividends.

Mutual Funds cont.Mutual Funds cont. Some examples of mutual fund Some examples of mutual fund

categories cont.categories cont. International fundsInternational funds

Invest in a variety of company stock around Invest in a variety of company stock around the world.the world.

Sector fundsSector funds Purchase stocks of companies in the same Purchase stocks of companies in the same

industry.industry. Bond fundsBond funds

Concentrate in corporate bonds.Concentrate in corporate bonds. Balanced fundsBalanced funds

Invest in both stocks and bonds.Invest in both stocks and bonds.

Other InvestmentsOther Investments Real EstateReal Estate

Includes land and anything attached to it.Includes land and anything attached to it. House, condominium, mobile home park, etc.House, condominium, mobile home park, etc.

AdvantagesAdvantages tax benefitstax benefits increased equityincreased equity pride of ownershippride of ownership

DisadvantagesDisadvantages property taxesproperty taxes interest paymentsinterest payments property insuranceproperty insurance maintenancemaintenance

Other Investments cont.Other Investments cont.

Commodities and futuresCommodities and futures Grain, livestock, and precious metalsGrain, livestock, and precious metals Commodity investors usually agree to Commodity investors usually agree to

buy and sell for an amount at a specified buy and sell for an amount at a specified price in the future and these are known price in the future and these are known as futuresas futures

Examples may include rice, cattle, and Examples may include rice, cattle, and goldgold

http://money.cnn.com/data/commodities/ http://money.cnn.com/data/commodities/

Other Investments cont.Other Investments cont.

CollectiblesCollectibles Collectibles are items collected over Collectibles are items collected over

time that may increase in valuetime that may increase in value Examples may include art work, antique Examples may include art work, antique

furniture, and autographed itemsfurniture, and autographed items

Evaluation factors for savings Evaluation factors for savings

and investing optionsand investing options

Evaluation FactorsEvaluation Factors Safety and riskSafety and risk

What’s the current and potential future What’s the current and potential future cost?cost?

Guarantee of money invested to be returnedGuarantee of money invested to be returned Can the potential risk be afforded?Can the potential risk be afforded?

Low tolerance riskLow tolerance risk High tolerance risk High tolerance risk

Diversity of investment optionsDiversity of investment options Potential yieldPotential yield

How much is the investment going to How much is the investment going to make?make?

Acceptable yieldAcceptable yield High yieldHigh yield Low yield Low yield

Evaluation Factors cont.Evaluation Factors cont.

LiquidityLiquidity How quickly can the investment be How quickly can the investment be

turned into cash without losing any turned into cash without losing any value.value.

High liquidityHigh liquidity Low liquidityLow liquidity

TaxesTaxes How much is Uncle Sam going to take?How much is Uncle Sam going to take?

Taxed earningsTaxed earnings Tax-exempt earnings Tax-exempt earnings